Although 77% of Americans have retirement plans in place, most don’t have enough savings to actually live comfortably during this stage in life. In fact, for Americans between 55-64, the median retirement savings totals around $107,000, which equates to as little as $310 each month. Fortunately, however, it’s not too late to boost your retirement savings without having to increase your income. By employing smart financial strategies, you can ensure your savings accounts are working as hard as possible.
1. Get the Most Out of Your Employer 401(k) Match
Maximizing your 401(k) plan can boost your retirement savings significantly, particularly if your employer offers a 401(k) match benefit. If you’re unsure about this, you can contact your company’s HR department for details about their match policy — you don’t want to miss out on this free money. Most employers offer a 50% match with some even going up to 100% (although, in some cases, this policy isn’t offered at all). Moreover, some employers use a “stretching the match” strategy, which involves offering a lower-percentage match on a higher percentage of your salary. So, for instance, this may involve matching 50% of the first 8% of your pay instead of matching 100% on the first 4% of your pay. Stretching the match ultimately encourages employees to contribute more to their accounts.
2. Get to Grips With Your Retirement Accounts
Contribution limits apply to IRA accounts, which means you can only contribute so much every year. For 2022, you can contribute a total of $6,000 between traditional and Roth IRA accounts (no change from 2021). Those aged 50 and older can also make a $1,000 catch-up contribution, or $7,000 in total. And, for your 401(k), you can make a maximum contribution of $20,500 in 2022, while the catch-up contribution for people 50+ remains $6,500, totaling $27,000. Keep in mind these accounts have penalties in place for withdrawals made before you turn 59 and a half, which means it’s wise to avoid making withdrawals.
3. Open a Health Savings Account
If you’re eligible to open a health savings account (HSA), it can work as an extra account that helps you save more for retirement in addition to your IRA and 401(k). Just like these other accounts, an HSA is also tax-advantaged, meaning the contributions you make aren’t taxed. In fact, with an HSA, you may be able to make an extra $3,600 in retirement savings (this goes up to $7,200 if you have a family health insurance policy). Your HSA savings can be used to cover current and future medical bills, and, in contrast to flexible spending accounts, you aren’t required to use these funds by the end of each calendar year. You can even use HSA savings for needs other than health care during retirement.
Planning a comfortable retirement requires strategy and determination. By getting the most out of your employer 401(k) match, understanding your retirement accounts, and opening an HSA, you can successfully boost your retirement savings.